The impact of a $600 taxable threshold on the hobby

[Tanooki | 4,929]

@RegularGuyGamer If you're strictly cash and you keep it out of your bank account and off of any digital payment processing ever, you're clear.  There's no record, so basically you have to go back to the great depression era tactics of knifing your mattress and hiding your dollars in there, and that's where you do your withdrawls from.

And yes the language you have it, it's saying anyone who drops over $600 into a payment/payments over an entire year, under the tax code, technically is considered a business and will get a 1099 tax bill for it.  Shady and sketchy, but you'll get reported all the same right along with the next dude making 100K a year doing the same with his 1099.  You can roll the dice and hope you're not audited, or you get snake eyes and a nasty gram in the mail.

And also yes, you're right with the IRS you *are* guilty until you do the work to prove you're not.  They're the opposite of the courts because they were given unfortunately too much power.  So it creates a real problem, one they'll moderately always win.  Did you keep your receipts on that gaming stuff in the 90s?  Still got that $200 receipt for the N64 from 1996?  How about that $35 receipt for Legend of Zelda DX on the GBC?  Well you may have just sold them for less than you paid for, and you know it, but they'll just see you as a margin to make more money off of because you weren't smart enough to retain 25 year old receipts.  Seriously stupid, seriously could happen.  With the way ebay nails you on their reporting since they're awful, you'll need to track every penny on their fees, fees on the shipping charges, the shipping charges, every last bit into packing materials, track the miles on your car/receipts for gas and maintenance since your car will now be a business writeoff for usage.

You'll need to become your own super accountant, or whatever they say you owe, you just cough up.  You know that's what they're counting on too.  It's not just about sticking it to gig workers who do the food runs, personal taxi, airBnB stuff and the rest.  They know they do track it all, it's all about screwing the private seller to rake in billions over X years.

That's why with my last post I said -- I'm done, gaming only for buying and more limited.  Trade, cash sales, no resale of found goods.  Yard sales, half price books credit, even the trash can.  I refuse to get sucked in wasting my time and money.

[B.A. | 1,139]

Those examples @Tanookiare pretty much my typical situation which I still don't have a grasp on how it's supposed to be handled. I sell maybe $1000 a year, sometimes less sometimes more. It's always a matter of cleaning some stuff out that I've had for YEARS though. 

I don't have a "tax professional", I don't flip anything. How the heck am I supposed to know, let alone prove how much a paid for some strategy guide on 1997?  

I'm not keen on paying taxes on the full gross sales amount so I guess I just won't bother to sell anything.

[Startyde | 175]

Massachusetts already passed a law three years ago for the same thing, $600 in sales and because of it, Paypal has been sending 1099's to the state and the state to the fed. As other have mentioned, it's infuriating to sell collectables now because I don't have records of what I paid for something 15 years ago, so there's no adequate deduction.

It's also hard t calculate certain items in general. Say I sold a graded card. Cost of grading is easy, costs taken from eBay and or Paypal fine, but the card itself was cracked from a box. How to you declare that, the cost of the box, the cost of the box divided by cards? The average raw price online? Any accountant would be like, this is stupid. And you're that accountant. On the flip side, it's a theraputic exercise in analyzing how much you spend, how much profit you actually make, and what is and is not worth your time to invest in, collectable wise.

TLDR: Whoever said start ion Jan, they're right.

[Tanooki | 4,929]

11 minutes ago, B.A. said:

Those examples @Tanookiare pretty much my typical situation which I still don't have a grasp on how it's supposed to be handled. I sell maybe $1000 a year, sometimes less sometimes more. It's always a matter of cleaning some stuff out that I've had for YEARS though. 

I don't have a "tax professional", I don't flip anything. How the heck am I supposed to know, let alone prove how much a paid for some strategy guide on 1997?  

I'm not keen on paying taxes on the full gross sales amount so I guess I just won't bother to sell anything.

As long as I stay married, until passing, the father in law is a tax accountant retired but does ours.  I remember when I got hosed by working for a month for this now shady operation called Appen that does work at home social media/etc ad stuff.  Just after I signed they quietly didn't tell people they chose to stop reporting taxes but went to 1099.  I ended up getting one for like a month of work and having to deal with it.  Given the slice the 1099 gave vs what they paid, I wasn't even making but 1/2 or 2/3 of what came in hourly it was a joke so I quit working(yet they still send renewals I ignore.)

Basically you aren't supposed to know, unlike appen that snitched out every hour of work, it was a tangible clocked story, start to end.  You can't track anything you bought more than a month or two ago unless you go through old bank statements or you're a receipt hoarder.  Most people don't, they won't next year, and in 2023 they'll get an YOU OWE... letter from the IRS instead of a refund, and I'd be shocked if there isn't some political shit storm over it when they find out when and who passed it and how.  It's bad enough they did it, but hid it under a clause of a subclause level deep in a pandemic relief bill!  Some relief, unless they meant relieving themselves on the tax payer.

Since you can't honestly chart it, no one can outside of current purchases starting now,  you WILL pay the full amount on the gross sales as any attempt to write it off with guesswork could mean fines, penalties, or worse for supposedly lying to the IRS about what you owe.

[Bonanza125 | 55]

16 minutes ago, Startyde said:

Say I sold a graded card. Cost of grading is easy, costs taken from eBay and or Paypal fine, but the card itself was cracked from a box. How to you declare that, the cost of the box, the cost of the box divided by cards? The average raw price online? 

The cost of the card would be zero cause you haven't sold the whole box yet. 

[RegularGuyGamer | 2,010]

@B.A.This is from the article I initially read

The IRS also wants to hear about income you generate from a hobby. Unlike with business losses, though, taxpayers can generally only deduct applicable expenses up to the amount of the hobby income. In other words, the excess (the loss) cannot be deducted from other income.

"However, because it's a hobby and not a business, you don't have to pay self-employment taxes on the income," Weston said.

...

Meanwhile, sometimes a belonging is more valuable when you sell it than when you acquired it, whether via a purchase or gift. Your profit generally would be the difference between your cost basis — its value when it came into your possession — and what you sell it for.

In these one-off cases, the profit would get treated as a capital gain. Generally, that means it's either taxed as ordinary income if you held the asset (the item) for less than a year, or else it's considered a long-term gain with a tax rate of 0%, 15% or 20%, depending on your overall income.

From what I understand, if you're making profit, they want their share. I know trading cards are on the radar as collectables kit coins, art and stamps are but idk if video games are on that list yet.

[attakid101 | 267]

Thanks, Obama 

EDIT: this is a joke. Nobody remembers this meme? It was only like 6 years ago… I gotta get some new material.

Edited October 5, 2021 by attakid101

[Californication | 1,477]

1 hour ago, Bonanza125 said:

The cost of the card would be zero cause you haven't sold the whole box yet. 

I am not an expert on this, but for sure that's not right.

I'd assume the basis is what you spent on it, if you split the basis among cards, you are decreasing your basis per card which would increase your taxable income.

[Bonanza125 | 55]

25 minutes ago, Californication said:

I am not an expert on this, but for sure that's not right.

I'd assume the basis is what you spent on it, if you split the basis among cards, you are decreasing your basis per card which would increase your taxable income.

If there is no adequate deduction then the cost of goods is zero. 

Edited October 5, 2021 by Bonanza125

[O.G. CIB | 415]

15 minutes ago, Bonanza125 said:

If there is no adequate deduction then the cost of goods is zero. 

Not accurate. His basis would either be the box / # cards in the box OR if he could prove the rest of the cards had no value or disposed of them / gave them away it would be the cost of the entire box. In all cases he has adequate deductions.  

Edited October 5, 2021 by Mr. CIB

[Tanooki | 4,929]

2 hours ago, attakid101 said:

Thanks, Obama 

No, thanks Biden, Schumer, and Pelosi for sneaking that in to tax the poor and middle class while mouthing off they're after the rich.

[fcgamer | 4,717]

6 hours ago, RegularGuyGamer said:

From what I understand, if you're making profit, they want their share. I know trading cards are on the radar as collectables kit coins, art and stamps are but idk if video games are on that list yet

Thanks Wata

[spacepup | 2,402]

12 hours ago, Tanooki said:

And yes the language you have it, it's saying anyone who drops over $600 into a payment/payments over an entire year, under the tax code, technically is considered a business and will get a 1099 tax bill for it. 

This is incorrect.

The new thresholds are for reporting requirements, and yes, you'll receive a 1099.  But you can handle this in a few ways on your tax return depending on your situation, and it doesn't necessarily mean you are a business or that you have to pay self-employment taxes, or that you have to pay taxes on the gross amount.

If anyone sells a decent amount of stuff, go talk to a tax professional and they can help you track and handle this going forward.

[BreaKBeatZ | 136]

As others have said, there was no change to the law regarding how you must pay taxes. However, the IRS (or state government) will now be able to catch you for not paying taxes on these sales. If this works as intended, the IRS is not collecting double taxes. If you buy a game for $100, the seller had to pay tax on the amount they profited. Then, if you sell it for $200, you only pay tax on the additional $100.

In my opinion, here are the two huge oversights with the law:

Many of us do not have proof of the cost basis for items we bought long ago as part of our hobby that we didn't intend on selling. In these cases, it will be very hard to pay taxes on profit only.

We can't claim losses on items that were "supposed" to depreciate in value. If I buy a new car for $20,000 and sell it used a few years later for $10,000, I have to eat the loss. On the other hand, I still have to pay taxes on items that increased in value, regardless of whether they were "supposed" to increase. Using a car as an example again, many people bought used 2001 Honda S2000s in 2010 for around $12,000 because they wanted to drive the cars. Now that car has become collectible and sells for around $27,000, and sellers have to pay capital gains taxes on the $15,000 profit. That is the situation many of us are in with video games. We bought them to play or for our personal collection, not as investments. We never expected to pay taxes on them and can't claim losses on similar sales.

[Estil | 1,258]

12 hours ago, attakid101 said:

Thanks, Obama 

 

[snes_collector | 56]

15 hours ago, RegularGuyGamer said:

How do you deal with buying items with cash? Just bank withdrawal records? That's my main concern since 90% of stuff I buy and sell is cash sales. 

I have been told that writing yourself receipts for the items purchased at flea markets/yard sales is adequate for record keeping of cost paid for the item.

 

But like many others, I was selling stuff I no longer used that I had no record of what I paid for, so for many items I wasn't sure.

[jonebone | 1,307]

Nothing will change.  Just like how people swore they'd quit eBay after they forced managed payments a year ago and guess what, ebay still churning as usual.  And count me in the group that absolutely hated the managed payments change (resisted as long as I could), but once I hopped over I'd never go back.  Set up the separate checking account and it was much easier.

Also, don't be scared of Government workers, they're normal people like you and I who want a 40 hour work week and nothing more.  About 50% of them are just doing the minimum too, or they'd be in private industry making more.

Those people are going to go after big dollar audits to maximize the return on their time, or returns that are obviously wrong (capital gains not reported despite your bank giving you a form, 1099s not reported, people claiming high amounts of deductions (home office use), etc.

If you're more or less honest and reporting fair amounts then you'll be fine.  If you had $10k of sales and reported and $11k of costs (expenses, COG, etc.) you'd be a bigger target (but still severely low percentage).  If you have $10k of sales and report your COG as $1k, $2k, $3k, $4k, etc.  they aren't going to know or care.

End of day we all accept some level of risk.  You have a risk of dying every day you hop in a car.  You have a risk of getting COVID everytime you go out.  And you have a simlarly low level or risk when you self report your 1099 income as long as you are matching top level.  Take that for what it's worth.

[Andy_Bogomil | 815]

The CRA knows where to find me if they want it. 

[RegularGuyGamer | 2,010]

9 hours ago, jonebone said:

Nothing will change.  Just like how people swore they'd quit eBay after they forced managed payments a year ago and guess what, ebay still churning as usual.  And count me in the group that absolutely hated the managed payments change (resisted as long as I could), but once I hopped over I'd never go back.  Set up the separate checking account and it was much easier.

Idk man, I guess the majority of people who push decent numbers on a yearly basis won't change but there are a ton, 85% of users, that don't get close to the current threshold. 

I know most of the people on here don't go to yard sales or flea markets anymore but if you saw the people who are buying video games, you'd be shocked. They're all basically homeless, clueless, largely over 55 and buying the entire lot regardless of what's included. 

I would saw of the 5 or 6 times I got beat on games this year, it was all to people who are the absolute salt of the earth. Those types of people are definitely out if they need to be bothered to keep records of anything or they're the people who are going to get smacked for the net costs and swear off online sales.

I know a lot of trash people only came around to the idea of selling online in the last 2-3 years. I am willing to bet all of those people are back to cash only and their buying slows down considerably after some high dollar video games sit in the sun for an entire summer 10% under ebay prices. 

[Tanooki | 4,929]

12 hours ago, spacepup said:

This is incorrect.

The new thresholds are for reporting requirements, and yes, you'll receive a 1099.  But you can handle this in a few ways on your tax return depending on your situation, and it doesn't necessarily mean you are a business or that you have to pay self-employment taxes, or that you have to pay taxes on the gross amount.

If anyone sells a decent amount of stuff, go talk to a tax professional and they can help you track and handle this going forward.

You can choose to interpret it however you want on semantics, but in the end, if you're getting a 1099 you can either choose to ignore it and hope for the best, or you need to treat it like you're a little business and account for every bit for writeoffs, etc because you're going to pay.  I may not be wording it to your satisfaction, but in the end, you're having to start accounting and acting like a business for so mcuh as a piddly amount of anything over $600 and it's pathetic as much as it's sad.

 

I find some of us here poo poo'n this whole thing off like it's no big deal, it is.  But I'm also not thinking just about games, but so many others who are offloading whatever for whatever reason that goes over that amount.  There will be people blind sided in 2023 with tax bills for stuff basically when 1099s show up.  In the end this was primarily focused at kicking people for being gig workers and not reporting stuff, or breaking up payments over various sources to hide the income keeping it under caps.  It would have been better to catch all gig operations and hit them with such things, but instead the bill took the ebay approach from a decade ago with their sick FVF making people pay taxes on shipping costs and other garbage they slipped in.  It's easier to punish everyone for the abuses of a minority.  Sure the ebay managed payments sucked, but as states, you setup a not tied to your real funds new account, and done.  This isn't something you can dodge, or at least shouldn't in case you try and get caught with an audit.

[jonebone | 1,307]

10 hours ago, RegularGuyGamer said:

Idk man, I guess the majority of people who push decent numbers on a yearly basis won't change but there are a ton, 85% of users, that don't get close to the current threshold. 

I know most of the people on here don't go to yard sales or flea markets anymore but if you saw the people who are buying video games, you'd be shocked. They're all basically homeless, clueless, largely over 55 and buying the entire lot regardless of what's included. 

I would saw of the 5 or 6 times I got beat on games this year, it was all to people who are the absolute salt of the earth. Those types of people are definitely out if they need to be bothered to keep records of anything or they're the people who are going to get smacked for the net costs and swear off online sales.

I know a lot of trash people only came around to the idea of selling online in the last 2-3 years. I am willing to bet all of those people are back to cash only and their buying slows down considerably after some high dollar video games sit in the sun for an entire summer 10% under ebay prices. 

For one, of that 85% you mention, how many are up to date with tax law?  Half?  Those people will keep churning as normal and will get a surprise 1099 that they either ignore or make up numbers for if they aren't tracking.

Keeping records isn't required... it's only there to defend you in an audit.  Of course everyone should but I guarantee a lot of people don't and won't.  If you're just going from memory and estimate you paid $50 for a $100 game you sold, no one is going to care.  And an audit isn't guys in black suits showing up at your door, most of them are just via mail.

Sorry to be so brutally honest but it's a simple function of time and people.  This change that everyone is bickering about is going to overload an already extremely strained system where they are woefully understaffed.  Especially in a remote working environment now.  They can't just triple their workforce overnight, so those same core group of people get triple the work.  That means even more reason to only focus on blatantly off stuff (1099 income not reported, extremely high deductions, etc.) or very large income, or severe income swings (making tons more in one year than before).

So if this scares anyone out, so be it.  If you're actually having fun or need any of that side money then you'll have to evolve and after one year you'll see it's not a big deal.  People are always resistant to change but once change is made they adapt pretty quickly. 

Edited October 6, 2021 by jonebone

[spacepup | 2,402]

13 hours ago, Tanooki said:

You can choose to interpret it however you want on semantics, but in the end, if you're getting a 1099 you can either choose to ignore it and hope for the best, or you need to treat it like you're a little business and account for every bit for writeoffs, etc because you're going to pay.  I may not be wording it to your satisfaction, but in the end, you're having to start accounting and acting like a business for so mcuh as a piddly amount of anything over $600 and it's pathetic as much as it's sad.

 

I find some of us here poo poo'n this whole thing off like it's no big deal, it is.  But I'm also not thinking just about games, but so many others who are offloading whatever for whatever reason that goes over that amount.  There will be people blind sided in 2023 with tax bills for stuff basically when 1099s show up.  In the end this was primarily focused at kicking people for being gig workers and not reporting stuff, or breaking up payments over various sources to hide the income keeping it under caps.  It would have been better to catch all gig operations and hit them with such things, but instead the bill took the ebay approach from a decade ago with their sick FVF making people pay taxes on shipping costs and other garbage they slipped in.  It's easier to punish everyone for the abuses of a minority.  Sure the ebay managed payments sucked, but as states, you setup a not tied to your real funds new account, and done.  This isn't something you can dodge, or at least shouldn't in case you try and get caught with an audit.

It's not semantics.  Misinformation about the taxation is being shared in this thread.  It is not always the case, for example, that self-employment tax is required on this type of income.  Each individual has to evaluate their situation and income, and then report it on the appropriate schedule on their return.  Thus, the actual tax percent may differ.

I'm not suggesting this isn't a big deal or anything - as the new requirement will make MANY more people have to deal with this.  I don't "like" the change and I personally think the threshold should be higher as well.  But given that it's here, people should arm themselves with accurate information if they are going to be selling online, and/or talk to a professional about what they need to do, if they want to minimize tax.

[RegularGuyGamer | 2,010]

11 hours ago, jonebone said:

They can't just triple their workforce overnight, so those same core group of people get triple the work.  That means even more reason to only focus on blatantly off stuff (1099 income not reported, extremely high deductions, etc.) or very large income, or severe income swings (making tons more in one year than before).

Not over night but the focus for this new bill is on contractors, gig workers and internet sales. The funds have been appropriated and they plan to go from grow their workforce of 83,000 people by 10% each year for a decade.

"The administration, in a Treasury Department report Thursday, proposed increased the IRS workforce by a maximum of 15% each year for the next 10 years, with a focus on hiring enforcement and taxpayer service personnel. The agency, under this plan, would also see its budget increase by about 10% year over year."

"Former IRS Commissioner Charles Rossotti said the IRS could reasonably shrink the tax gap between what taxpayers owe and what the agency collects by $1.4 trillion over 10 years, if Congress granted 6% increases to its budget over the same period."

Now the IRS wants bank to automatically report any transaction over $600 down from $10,000. The IRS wants to find all of these outstanding funds since a huge part of the population now has just been side stepping the taxes since the amounts are so low, and like you point out make it ultimately not worth their time.

Already now, the percentage is smaller on middle class audits but it's over a million a year for people in the middle class. Now it's a 4% chance of audit and they want that numbers around 10%. Still small but there is going to be a push to pay for all these bloated bills and programs that have been pushed through and one of the arms used to reap that dough is is going to be the IRS so they're trying to make sure it's strong. 

My hope is just the hiring shortage makes it actually harder for them to keep up with all the new data and that govt bureaucracy keep the IRS tripping over its own two feet. 

[LutherDestroysTheGond | 690]

[Tyree_Cooper | 738]

This cartoon says it all really. "Strong with the weak, weak with the strong". As usual, this has nothing to do with money. It has all to do with making sure poor people remain poor, and making sure they know they're being tracked and watched in all they do. Meanwhile, eBay-Amazon-and-Friends are in Ireland and Luxembourg paying close to no taxes, showing you a fat middle finger.